Participatory impact investing: whose voices count?

Published on 21 May 2018

Image of Grace Lyn Higdon

Grace Lyn Higdon

Monitoring, Evaluation and Learning Specialist

Image of Peter O’Flynn

Peter O’Flynn

Research Officer

Impact investing is a financial investment made with the intent to affect social or environmental change. It is an ever-growing investment method with the GIIN’s 2017 Annual Impact Investor Survey finding that over USD 114 billion was invested in impact investing assets. To put that into greater context, net ODA from official donors totaled USD 146.6 billion in 2017, and the impact investing market has greater scope (and appetite) to invest with these aims.

Why participation and impact investment?

Participation is a process, within which specific methods are used to enable people to influence decisions which affect their lives.

This means people’s voices are not only included or amplified but are able to shape outcomes. Those outcomes will be more grounded in lived realities, more likely to achieve greater social impact (PDF), empower and build capacity in local communities, and more likely to avoid costly mistakes.

It asks those with decision-making power to be explicit about:

  • who defines impact?
  • who measures impact?
  • and whose voices count in impact investment?

New blog series on strengthening people’s participation in impact investments

This blog series seeks to identify opportunities for greater participation of the populations impact investments intend to support. Our starting premise, based on mountains of evidence from the sector, is that participation is necessary to achieve the scale and genuine social impact these investors seek to influence.

We’ve discovered that while there appear to be a few lone voices of participation in the impact investment wilderness, conversations about participation have not reached the crescendo necessary to permit impact investment to be an authentic vehicle for transformative social change.

In other words, insufficient attention has been given to engaging, consulting, involving and reflecting with  the communities impacted by investors.

This post introduces a series of blogs which explores how to strengthen the participation of the people impact investment intends to serve in the investment process.

Who are we?

We are two practitioner researchers who have arrived at impact investment from two different professional locations, meeting at the intersection of participation, evaluation, and finance.

Our goal is to introduce ongoing discussions that each side may be unaware of, unfamiliar with, or unable to decipher given the conflicting, opaque, and often contradictory language and conceptual approaches used. For the rest of this blog, translations between the sets of vocabularies will be indicated in parentheses.

We represent two communities of practice that should be engaging with one another more.

Team Development: Grace

I’m a practitioner/researcher with experience in humanitarian response and program evaluation currently working with the IDS Participation Cluster as a research assistant.

My research agenda pays close attention to conversations around participation and power in organisational learning, accountability, and the politics of data in global development. Impact investment has been on my radar since 2013 though I have always been quite skeptical of the encroachment of finance upon the sector.

Transposing business norms, theories, and incentives is not, in my opinion, the panacea that many of the converted now proselytize.

Team Finance: Peter

My background is from a relatively more finance perspective. I first engaged with impact investing in 2014 when working for a company producing research reports for private banks on Ultra-High Net Worth Individuals.

From there I joined the IDS with a research focus on Impact Investors and how they generate social impact, as well as Bilateral Development Finance Institutions, publicly funded institutions that typically invest in companies in the global south.

I am a broad advocate of these initiatives and the requirement to leverage private finance for social impact, especially given the 2.5 trillion investment gap faced by lower income countries every year in the attempt to fund the SDGs.

Upward accountability, downward accountability and the in-between

The most common definition of impact investing is investment “made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return” (GIIN 2017).

As a simple example, when an impact investment is made, such as an investment into a private company, the investor takes a stake or share in the company. The investor now has assets, or part ownership of this company.

As a result, the investor may have a seat on the board or some similar level of governance, and ultimately, maintain a level of control for how to shape the direction of a company and how it achieves its commercial impacts (profit) and social impact (project outcomes).

Conspicuously absent in this decision-making process are the voices of the people who the investments are claiming to benefit. Efforts to achieve social impact can therefore be construed as top-down and prescriptive instead of bottom-up and participatory. Deal structures (intervention designs) require investees to provide an account of their actions to the investor but not to the target groups they hope to serve.

Global development has a term for this: upward and downward accountability.

Upward Accountability: social change actors are accountable to the funders, donors, investors, shareholders who directly or indirectly provide financial support and permission for their efforts. Operations are contingent upon these authorities.

Downward Accountability: social change actors are accountable to the people they aim to serve and the transformative agenda they aspire to.

Naturally, this may not be true for all investors, particularly mission aligned actors who have specific communities they want to target (PDF).

However, we believe it is a fair assessment that the community voice isn’t making its way back to investors as much as it should be.

Impact Investing needs to be held to higher downward accountability standards

We’ll argue throughout this blog series that impact investing needs to be held to higher downward accountability standards which inherently requires increased participation of investment target groups.

Impact Investors can learn from the rich history of discussion around issues of accountability (PDF), effectiveness (PDF), impact measurement in development, and can choose to borrow and adapt as they see fit.

Communities affected by impact investment are currently limited to serve as a resource base – as consumers of investee products or employees of investee businesses. Community needs do not dictate the terms of deals.

As Morgan Simon, co-founder of Toniic, asks: “How do we establish accountability structures as an industry so we can make sure that what we think of as impact is actually providing what people need and want?”

And yet the community voice does matter for impact investors (be they asset managers, foundations, asset owners, or wider service providers). Many have demonstrated so through their work collecting data, writing compelling case studies, and delivering impact.

Others are exploring the harm caused when we don’t incorporate communities into the investment process. However, we are posing the question: how should this extend to decisions made during the investment process? How can communities be engaged during due diligence, monitoring and evaluation during the investment, or even within the process of exiting an investment?

Sticking our heads in the sand?

On the flip side, development practitioners would benefit from understanding that Impact Investment is an important field worthy of taking note.

Commercial players are entering the social change space to the tune of 390 million dollar funds. Nonprofits and foundations are moving resources from grant models towards investment models.

Furthermore, increased resources are coming from the public purse, to fund impact investing models. The model of doing business with public and private actors in the development community could change even more significantly over the next ten years.

Those who are concerned about the use of capitalist instruments for delivering development impact for the SDGs may be facing a new normal. As a result, it is imperative that both team finance and team development get more comfortable with each other’s language and approaches, to minimize time spent reinventing wheels and most importantly, ensuring that people affected by the investments are empowered and not exploited.

Our road map for the blogs ahead

Our next post will provide resources and map out the basics of impact investment language translated into development terms, as well as discuss the most common financial instruments/mechanisms used.

Once we’re all comfortable with the basics, we can then move on to some of the key areas in which we see opportunity for increased participation in the impact investment cycle.These include:

  • co-defining risk and return
  • participatory due diligence processes
  • and more equitable ownership models.

Blog 2: Glossary and Basic Concepts Here we are going to make a further deep dive into some of the core investment language, concepts applied by the impact investing community, providing our core messages for working with impact investors and our tips for bridging the ‘language divide’.

Blog 3: Participatory opportunities in Risk, Returns, and Ownership (including ‘impact washing’) We will outline the several opportunities and benefits to taking a participatory approach that takes into account these broader stakeholders in impact investing, be they consumers (beneficiaries in the development language), employees, or broader communities. Furthermore, we address how this may be applied at the investor’s portfolio level.

Blog 4: Impact Measurement Impact Investing still hasn’t found it’s silver bullet towards accurately measuring social impact, in a manner that both accurately, robustly and cheaply the core social impacts that are occurring on the ground. This blog will seek to find what role participatory statistics and measurement could have in better reflecting the core social impacts occurring through the investment, and as a result, provide greater insight for the investee and investor for the impact they are making.

Based off our reflections on this process, we don’t want to limit ourselves to only four blogs! As we reflect and partner with like-minded colleagues wanting to do more in this space, we will seek to further develop guidance for improved practice.


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